USANA Health Sciences, Inc. (USNA) Q4 2011 Earnings Report, Transcript and Summary

Ladies and gentlemen, welcome to the USANA Health Sciences Fourth Quarter Earnings Conference Call on the 8th of February, 2012. [Operator Instructions] I will now hand the conference over to Mr. Patrique Richards. Please go ahead, sir.

Good morning, everyone. We appreciate you joining us this morning to review our fourth quarter results. Today's conference call is being broadcast live via webcast and can be accessed directly from our website at www.usanahealthsciences.com. Shortly following the call, a replay will be available on our website. As a reminder, during the course of this conference call, management will make forward-looking statements regarding future events or the future financial performance of our company. Those statements involve risks and uncertainties that could cause actual results to differ, perhaps materially, from the results projected in such forward-looking statements. Samples of these statements include our 2012 strategy for our North America region, China and other markets, as well as our initial opportunities in 2012. We caution you that these statements should be considered in conjunction with the disclosures, including specific risk factors and financial data contained in our most recent filings with the SEC. I'm joined this morning by Dave Wentz, our Chief Executive Officer; Kevin Guest, our President in North America; and Doug Hekking, our Chief Financial Officer. We'll hear first from Dave, who will discuss our business activities during the quarter, as well as our strategies moving forward. We will then hear from Kevin, who will provide more information on our strategy in North America. And finally, Doug will discuss our financial results and 2012 financial outlook. I'll now turn the call over to Dave.

Thanks, Pat. Good morning, everyone. Well, USANA finished 2011 strong, generating our ninth consecutive year of record sales and reporting the highest annual net earnings in EPS in the 20-year history of the company. Our record performance is the direct result of the significant effort put forth by our management team, employees and associates around the world. I'm continually impressed by the dedication and innovation with which our teams approach their respective roles to drive our business and overcome challenges. I'll begin this morning with our regional results and then discuss our strategies and expectations for 2012. Our top line results during the quarter were again driven by our Asia Pacific region, where sales increased by an impressive 14%, while the number of active associates increased 1.4%. We continue to develop strong growth in emerging markets such as the Philippines, South Korea and China. Sales in the fourth quarter grew 211% in the Philippines, 67% in South Korea and approximately 46% in China compared to the fourth quarter of 2010. Our sales results in these markets were driven by strong customer growth. In particular, the number of active associates grew 157% in the Philippines, 50% in South Korea and 17% in China. Our strong results in China are the results of our continued effort to introduce USANA products in mainland China and educate our associates on our China compensation plan and how to build a successful direct selling business in China. During 2011, one of our key objectives was to introduce a variety of USANA products in China. We targeted 3 waves of product introductions over a 12-month period and set tight deadlines for each wave. I'm pleased to report that our team met the deadline for each wave and the result was 3 rounds of successful product introduction. This accomplishment is even more significant when you consider the regulatory environment in China. Our final launch of USANA products for 2011 occurred in November at our China Associate Convention. This launch included 4 core USANA supplements, which were all eagerly anticipated by our associates. This launch not only met our associates' requests, it expanded USANA's presence in China's adult supplement market and consequently, expanded our associates' sales opportunities to existing and prospective Chinese customers. Going forward, we are confident that these product introductions will help drive both customer and sales growth in China long term. In total, we now offer 8 USANA-branded products and 5 Sense-branded products in addition to the BabyCare products in China. In 2011, we also continued our efforts to educate and train our associates on a compensation plan in China and in general, how to build a successful direct selling business in China. These efforts contribute to our sales growth in 2011 and will continue to be part of our key initiatives in 2012. While we have made progress in China and we expect to generate double-digit growth in this market again in 2012, we have not lost sight of the fact that China is a long-term growth opportunity for USANA. The direct selling companies that had been successful in China took many years to achieve success and made significant investments in this market. Although we do not anticipate significant capital investments in China in 2012, we must continue to invest the necessary time and effort to help our associates understand how to appropriately drive growth in China. By patiently and consistently executing our strategy, we're positioning USANA for long-term sustainable growth in this important market. Now turning to our results in Hong Kong. Fourth quarter 2011 sales grew approximately 11% year-over-year and 14% on a sequential quarter basis. This growth was driven largely by a successful promotion that Hong Kong offered for several weeks in December. We have offered this promotion in previous years and it has delivered consistent successful results. It's important to note that this promotion is most successful when offered infrequently and therefore, we only expect to offer it on an annual basis. Hong Kong also grew in 2011 on a full year basis, but its growth was aided by several unique events during the year that we do not expect to continue in 2012. These 2011 events included sales from our annual Asia Pacific convention that was held in Hong Kong during the first quarter, recognition of deferred revenue in the first quarter due to a promotion that ended on the final day of 2010, a surge in sales ahead of anticipated policy changes during the second quarter and a larger-than-expected surge in sales in the fourth quarter from the promotion I just mentioned. Setting aside these events that aided Hong Kong's growth and in light of our continued focus in growing our mainland China market, we believe that Hong Kong's performance in 2012 will be more in line with its results for the third quarter of 2011, which is roughly a $35 million quarterly net sales run rate. Please keep in mind that we did not offer any promotions or incentives during Q3 2011. The key take away from this is that Hong Kong is still a very strong market for USANA and will continue to be a significant part of our international business going forward. Looking forward, we expect continued growth in Asia Pacific in 2012. This growth should again be led by emerging markets such as China, the Philippines and South Korea. And with Thailand coming online, we are obviously very optimistic about the future of this region. I'll update you on Thailand and our other market openings in a moment. Turning now to North America. Sales for the fourth quarter declined 4.2% in this region as a result of a 9.3% drop in the number of active associates. These numbers are obviously disappointing to our team and show that North America continues to present a difficult operating environment for USANA. Our North American management team has developed a new strategy to stabilize and grow North America. This team is led by Kevin Guest, our President in North America. Kevin is here with me this morning to review his strategy.

Thank you, Dave, and good morning to everyone. I appreciate the opportunity to provide a brief overview of what we're doing in North America. Our strategy for this region is centered on a number of key initiatives, which include the following components. First and most importantly, we continue to strengthen the partnership between USANA and its North American sales force. Over the past several months, I personally have seen a dramatic improvement in our relationship with our sales force and I believe this relationship is as strong as it's ever been. We will continue to strengthen this relationship by holding more meetings and events, where management and associate leaders attend in person and work together to grow business. We also have made new leadership development a key component of this initiative. We will spend a significant amount of time developing the leadership, communication and presentation abilities of our sales force. Bottom line is that we believe investing in and improving the skill set of our sales force will lead to growth in North America. Next, we're focusing on personalization and innovation in each of our markets beginning with the United States. This initiative includes tailoring our product offerings, product delivery systems and technologies to meet the individual needs of our customers. It also includes scientific innovation to drive the development of new product and technologies. In this regard, we've expanded our research and development group, increased our research and development investment and expanded our collaboration with outside scientific experts. We will announce some of the results from our focus on personalization and innovation at our 2012 international convention in August. One of our personalization initiatives, we will introduce the associate incentives and promotions specifically for our North American region. We have seen that certain initiatives work well in some markets and not as well in other markets. For example, our Matching Bonus program has driven considerable growth in our Asia Pacific region but has not been nearly as successful in North America. Working closely with our North American leaders, we are identifying the right incentives and promotions to excite our North American sales force and drive sales. Finally, we will continue our efforts to enhance our global brand, which includes strengthening our brand in North America. This includes product sponsorships for professional athletes, as well as advertising and partnering with credible organizations. Examples of this include our recent sponsorship with the U.S. ski and snowboard teams and our role as the official health supplement supplier to the Women's Tennis Association. Our new relationship that we are incredibly excited about for 2012 is our association with Dr. Mehmet Oz. Over the past 5 or 6 years, the world has witnessed the overwhelming rise of popularity of Dr. Oz and now he's becoming part of the fabric of American culture. Last month, Dr. Oz appeared as a surprise guest on the USANA monthly leadership call. The response from our sales force was overwhelming and included an explosion of enthusiasm on Facebook and Twitter as the call was happening. During this call, Dr. Oz described how excited he was about his relationship with USANA. This relationship will include his participation on future leadership calls and more importantly, his participation at our international convention in August. As part of this relationship, USANA will also be involved in the Health and Happiness Summit with Dr. Oz at Radio City Music Hall in New York City later this month on February 25. Both Dr. Wentz and Dave have been invited by Dr. Oz to be a part of the star-studded lineup of celebrities and best-selling medical authors, who will appear on that day. Additionally, thousands of our associates have reserved tickets to attend this event. This is a major event, which will be the first of its kind production that should yield great exposure for USANA. I'm very excited about each of these initiatives and believe that they present the right balance and approach for growing USANA's North American business. Although this is a long-term strategy that will require upfront investment in patients, we are optimistic that the successful execution of the strategy could produce results as early as the fourth quarter of 2012. Before I turn the call back to Dave, I'd like to express my excitement about the recent addition of Douglas Braun to our management team. Doug joined USANA in December as Vice President of Marketing and brings more than 20 years of direct selling experience to USANA. He also brings an impressive skill set and a fresh perspective to the management team. I've had the opportunity to work closely with Doug in recent weeks and have already seen the benefit of his initial contributions. We are very excited to have him on board and I believe that his contributions to our strategy will help us improve our North American business long term. With that, I'd like to turn the call back to Dave.

Thanks, Kevin. Before Doug Hekking takes you through our financial results, I would like to update you on the status of the opening of Thailand, France and Belgium. Opening in 3 new markets in 6 months represents an unprecedented level of new market development for USANA. But it's consistent with our plan to be more aggressive in our international expansion efforts. Each of these new markets was chosen strategically and will play an important role as we expand USANA's international presence. Despite the minor delays as a result of the heavily publicized floods in Thailand, we have now completed our necessary infrastructure in Thailand and received our direct selling license, as well as key product approval. Although sales have already commenced in Thailand, we will hold our formal grand opening later this year during the second quarter. We have also made significant progress in France and Belgium and still expect to formally open these markets at the end of the first quarter. As our most recent market openings have been concentrated in Asia Pacific, I'm excited about the opportunity for USANA to expand into Europe. I'm also excited about the opportunity that France and Belgium provide for our North American Associates to expand their businesses internationally. This is particularly true for many of our Canadian associates, who have direct ties to France. Finally, 2012 marked USANA's 20th anniversary. We will celebrate this important milestone at our international convention here in Salt Lake City this August. While each of our past conventions has been very exciting and successful, I promise you that this year's convention will be the largest and most impressive event we have ever held. Kevin has already told you about Dr. Oz. What I can tell you is that Dr. Oz is only one of many exciting attractions we have planned for our 2012 convention. In closing, I am confident that 2012 will be another successful year for USANA. I am pleased with the underlying strength of our business, particularly in light of the challenges we faced in 2011. We're excited about 2012, in particular, about our new market openings, our significant opportunity in China and the initiatives we have planned for North America. With that, I'll now turn the call over to Doug to discuss our financial results.

Thanks, Dave, and good morning, everyone. Given that we just issued our fourth quarter and full year earnings release yesterday, I'll be brief in reviewing our financial highlights and then jump directly into our financial guidance for the upcoming year. On the income statement, gross margins for the quarter improved as a percentage of net sales to 83.1%, compared with 82.1% for the prior-year period. This 100 basis point improvement was due primarily to a change in mix of sales between our international markets to those markets that have higher gross margins. We also experienced production and procurement efficiencies generated by our operations group, both during the fourth quarter and the full year 2011. Our associate incentives line expense for the quarter increased 130 basis points to 46% of sales, compared to the fourth quarter the prior year where we're down at 44.7%. This increase was largely due to an increase on the matching bonus and market-specific promotions during the quarter. SG&A quarter decreased on a relative basis, 100 basis points to 23.3%. This decrease was due primarily to leverage gain on increasing sales outside the U.S, where SG&A costs are much lower. Additionally, we also experienced lower equity compensation employee bonus expenses during the current year quarter. Our effective tax rate for the quarter was 34.5%, compared to 32.9% for the fourth quarter of 2010. The increase in our effective tax rate is due to federal and state tax credit from deductions received during the fourth quarter of 2010 that were not realized in the current year quarter. Net earnings for the fourth quarter increased 6.2% to $13.2 million as a result of higher net sales, improved gross margins and lower relative SG&A. This increase was partially offset by higher associate incentive expense and a higher effective tax rate. Earnings per share increased 16% to $0.87 per diluted share due to higher net earnings and a lower number of shares outstanding from share repurchases over the last 12 months. During the quarter, we repurchased 25,000 shares for an investment of $758,000 at an average price of $30.57 per share. Share repurchase over the last 12 months benefited fourth quarter earnings per share by $0.07. To quickly recap the full year 2011, net sales increased 12.4% to $581.9 million, while net earnings increased 11.2% to $50.8 million and earnings per share -- per diluted share increased 14% to $3.26. We repurchased 1.1 million shares during the year and ended 2011 with approximately $50.4 million in cash and we remain debt-free. The increase in cash, cash equivalents was driven by cash flows from operations of approximately $70 million during the quarter -- during the year, excuse me. I'd now like to provide some commentary on our initial guidance for 2012. We expect net sales for the year to be in the range of $600 million to $615 million. Our top line forecast anticipates local currency sales growth in most of our markets, with continued growth in the emerging markets Dave mentioned. Sales from our new operating market beginning for the most part in the second quarter, we anticipate that these new markets would generate somewhere between $10 million and $13 million for the year. Our forecast also anticipate some currency headwinds in 2012, where we expect some strengthening of the U.S. dollar. Our earnings per share forecast of $3.35 to $3.45 reflects the following assumptions. We have some increased pressure in gross margins driven by raw material costs that we're seeing go up a little bit and anticipated strengthening of the U.S. dollar. These 2 items combined are expected to impact EPS by around $0.10 for the upcoming year. We continue to pursue several sourcing strategies and hope to offset some of the pressure incorporated into our guidance. A decrease in associate incentive expense to approximately 45% of net sales for the year resulting from pricing and payout initiatives we intend to execute during the year, as well as the shift of sales towards markets that historically had a lower level of incentives. SG&A expense is slightly above the 24% of sales for the year. This increase can be attributed to an initial investment in our North American growth strategy, increased expenses for brand awareness and collaborations with nationally recognized organizations, increased expenses associated with our annual convention in both our North American and Asia Pacific regions and startup costs associated with our new markets. Also please note, the stronger expected U.S. dollar is also going to provide some pressure on our SG&A line. Our earnings per share estimate reflects the diluted share count of about $15.2 million at the end of 2012 and as such, does not reflect meaningful buybacks during the year. We expect our trend of generating strong cash from operations to continue in 2012. And as always, we are exploring various alternatives to invest our cash to grow the business. Although it's not our typical practice to provide quarterly guidance, we're expecting several expense items that will pressure net earnings in the first quarter, including pre-market startup costs associated with our new markets, increased costs associated with our Asia Pacific convention, higher raw material costs and investments in our North American growth strategy. Also please remember, on the top line, that we deferred approximately $3 million in revenue in Hong Kong during the fourth quarter of 2010, which is recognized in the first quarter of 2011. This was associated with the free starter kit promotion offered in the fourth quarter. All these factors will impact our first quarter 2012 operating results and will most likely produce a difficult sequential and year-over-year quarter comparable. Following the first quarter of 2012, we expect our operating performance to improve meaningfully during the remainder of the year. In closing, I'd like to express my confidence that 2012 will be another successful year for USANA. We are pleased with the strength of our underlying business and the way we responded to the challenges during 2011. Going forward, we will continue to focus on driving operational efficiency and will leverage the strength of our business model to increase sales, profitability and continue to generate strong cash flow. With that, I'll ask the operator to facilitate the question-and-answer session.

[Operator Instructions] Your first question comes from Scott Van Winkle from Canaccord Genuity.

Congrats on the Dr. Oz deal, that's great. So when did he appear on the first leadership call?

A couple -- January.

Yes. It was the first part of January.

Mid-January, 16th? I don't remember the exact date.

Is there anything beyond his appearance and participation that you mentioned, product placement on the show? Or I think about you guys certainly watch your peers and what Herbalife has done with Dr. Ignarro developing product. Anything beyond the appearances?

Currently, we're just building the relationship. We have the appearances set up that we're very excited about. And he is -- getting to know him. He's just a fantastic guy and I'm just so excited to see where things will go over the coming years because he has been very supportive and he just has the same vision and mission that we do about improving people's health. And so he's excited to team up with other people if he feels that he can expand his influence on the world to make it a healthier place. And we love to be a part of that. So who knows where it could go but no plans other than speaking engagements.

He definitely moves markets.

Absolutely.

So Dave, you gave us a Hong Kong comment about that kind of $35 million a quarter. Can I just make sure that I have the third quarter numbers correct between Hong Kong, Taiwan and mainland China. Would it be about $35 million of sales in the third quarter in Hong Kong, $6 million in Taiwan, $6 million in mainland China? Or probably a better question for Doug, does that sound right?

Yes. That's roughly in the right ballpark, Scott.

Okay and then mainland China was about $6 million here in the fourth quarter, is that what I'd back into?

Yes.

Okay. And can you -- your products that were launched, the USANA products, not necessarily the Sense, but the USANA supplements that were launched in mainland China, can you give us an indication of what those were specifically?

The products launched in China were Proflavanol, Hepasil, Active Calcium and -- so many meetings. [indiscernible] -- Hepasil, Proflavanol and Active Calcium. Yes. So many meetings. So many products.

And is there a mainline multivitamin and multi-mineral supplement on the USANA brand sold in mainland China now?

Yes. So we have the Essentials there and now we have these Optimizers in addition to the Sense products, the Proflavanol, of course, being our #1 Optimizer around the world that has been received very well in China. We're excited about that.

And ballpark, if you have to guess, you may not have the numbers right in front of you, the products that are available in China under the USANA brand, what percentage of your global sales do they constitute?

I don't have that in front of us, Scott. It's something we haven't talked about it historically but we can probably go back and dig it up and get it back to you.

But the Essentials are your #1 product, correct?

Over in China?

Or globally.

Yes, it is.

Okay. So you've got a good lineup in mainland China now. And can you give us an idea what the specific promotion was, that was done in Hong Kong in the fourth quarter that helps sales? What kind of promotion it was?

That was the free starter kits.

A free starter kit?

Yes.

That boosted recruiting, as much as sales or more than sales? Or how should I think about what kind of carryforward we have off that promotion?

Those were extremely successful. It brought in thousands of new people and of course with them, the sales that comes with them.

I think going forward, Scott. What we've seen in this past from the free starter kit is we see that bump and we do definitely see some of those carrying forward but we also see -- because you lower that cost of entry, you see some of those folks not carrying forward as well. So I think Dave talked to the expectation in Hong Kong, where we expect to be at. So just keep that in mind.

And on the volume incentive line, expecting it to come down a little bit a percentage of sales in 2012. Have we seen basically a peak here at this 46-plus percent level? And is the Matching Bonus going to continue?

We have seen a peak, I think, at the 46% level on the plans right now that we are continuing Matching Bonus.

Yes. We look to manage that down. 46%, hopefully, will be the high. We don't see any reason why we haven't peaked.

The next question comes from Tim Ramey for D.A. Davidson. Timothy S. Ramey - D.A. Davidson & Co., Research Division: Doug, I was a little unclear on exactly what you said about the 1Q. I think -- I thought you said it was identical sequential in year-over-year results. But I can't quite get my head around that math. What does that really mean since last...

No. What I attempted to communicate, Tim, is that we're going to see a tough comp in the first quarter. On the sequentially, we had a host of things. The prominent thing is a lot lower expense level in Q4 than we're going to see in Q1. On a year-over-year basis, we have a similar thing but just to a lesser degree. I kind of rattled off all expenses there but if you look at it from a sequential basis, I mean the cost of putting the Asia Pacific convention on is a big part, the startup cost for the new markets. The initiation of our North American strategy there's a lot of upfront initial spend on that. So we're going to see a tough comp from an earning standpoint. And revenue, you're not -- on a year-over-year basis, you got to remember that we floated through a roughly $3 million from Hong Kong in the prior year. Timothy S. Ramey - D.A. Davidson & Co., Research Division: So we should probably expect something like flattish revenues and maybe down earnings a little bit?

On a year-over-year basis, yes. I think that's fair. Timothy S. Ramey - D.A. Davidson & Co., Research Division: Okay, that sounds good. I wonder -- I'm sure you're students of some of your other peers and the situation you sounded right now reminds me a lot of where Nu Skin was a couple of years ago, where they were having trouble with traction in their associate growth but ultimately overcame that, never got quite fixing Japan but the rest of their markets kind of took up the slack and drove the sales in associate growth. Have you looked at that? Do you think there's any interesting parallels to your business right now?

I think Nu Skin has done a fantastic job of getting focused. They've really zeroed in on their ageLOC products and we're looking with our strategy in North America to get that focus back. We've tried to be so many things to everybody, trying to just give more and more things. But by doing that, we've spread ourselves so wide that we don't have an easier, simple message. We have 500 different messages that each person chooses. And so getting back to that focus is what I've seen drive companies like Herbalife and Nu Skin is just getting focused. I haven't seen Herbalife introduce a whole bunch of new things but they've gotten focused and their sales have taken off. And that's what our strategy is, is to get all of our people on the same page with the same message that's consistent and simple. And by doing that, you get all of these masses unified and moving forward in direction. And that's why we're so excited about becoming the premier personalized nutrition company in the world and we believe that message, that focus will really get things going for the North America market.

Tim, this is Kevin. I wanted to just make a quick comment on that notion. We have looked at some of our peers in the industry and we do believe that some market behavior can be somewhat critical as it relates to maturity level of markets and -- meaning that, when I talked about new leadership development being part of our key strategy for North America, given the maturity of a 20 -year-old market here in the United States and so forth, we're excited as we are identifying new leaders to bring that new level up. And we've seen that happen in our peers to be very successful. That's why new leadership development is a key to growth in the United States. Timothy S. Ramey - D.A. Davidson & Co., Research Division: Got you. Well, probably don't have to remind but Nu Skin stock tripled as they did that. So we got that hopefully to look forward to.

We're looking forward to that. Timothy S. Ramey - D.A. Davidson & Co., Research Division: Yes. Dave, just kind of a macro philosophical question. You talked about distributor engagement and education and training in the U.S. but clearly, there are some macro factors that maybe have weighed on the business. The kind of the overall negative press on vitamins would be one and just the high price point of your products relative to disposable income would be another. Do you have any thoughts about kind of where we're at on those 2 factors that are less in your control?

Yes. I definitely heard from the field and saw at the field that they were having a tougher time. They were having to talk to more people to get the same results. And that can start to weigh on them and tire them out, when you feel like you have to talk to twice as many people to get the results you were getting 5, 7 years ago. And so I'm starting to see that ease off. But now they're waiting for something new and exciting to get them passionate and back rolling again. Put the fire back in their belly, if you will. And so we're extremely excited that the personalization, the Dr. Oz and some of our other sponsorships starting to get them excited again about new and exciting cool things that make it fun and -- get [ph] them inspired again. And so that's what we're really focused on in North America is putting that fire back in them now that things are easing from a macro sense. And they hopefully can get their results close to, if not back to, the results they used to have where they could convert the same percentage to customers that they used to. So we're hoping to see that ease off but we need to give them that trigger to wake them out of that malaise and get them going. Timothy S. Ramey - D.A. Davidson & Co., Research Division: Dr. Oz, maybe he'll do that.

We're hopeful.

The next question comes from John San Marco from Janney Capital Markets.

Why -- just one quick housekeeping item. Why did the number of preferred customers reported in BabyCare change for the year-ago period?

Yes. When we went back and looked, there's a little bit of confusion after the acquisition was done and when they went back and kind of looked at comparable measure, we had to go back and update that with the accurate figure. So it was just a mistake, historically.

Okay. And then, I was hoping to talk about gross margins in more detail, secondly. Really for 4 straight quarters, reality seemed to be better than expectations on the gross margin front, culminating in what I believe is maybe a best-ever gross margin during the fourth quarter. Can you just give more detail on how this number seems to keep chugging along? I know you mentioned positive mix but maybe, just more specifically, what it is within the mix driving that?

The mix is as much by country as it is the individual product mix within a market. Some of our markets have a higher gross margin and when we see pushes on certain revenue items, you see gross margin pickup just from the relative mix of an individual market. From a sequential quarter basis, third quarter had the convention in there. Typically, we have a lot of sales aids and logo merchandise that have much lower gross margins. But our production group has continually gone back and worked and introduced more efficiency from both a production standpoint but also a procurement standpoint. We're just bumping up when we went back and talked about pressure coming forward this upcoming year. Really, we see our raw material costs affecting our gross margin by about 40 basis points upward on pressure. The majority of that is driven by one single ingredient that we're looking to find ways of developing our sourcing strategies and looking at stuff and finding different ways to go back and deal with them. But that's kind of what we see at this point.

Got it. So presumably, on the country mix issue, we're obviously talking about some combination of the 4 best growth markets you called out. What is it that makes gross margins higher in any of those markets? Is it on the cost side or price points dramatically different?

It's the relationship of all those things. When we go back into a market, obviously, regulations dictate what we can and can't put into products on a market-by-market basis. In the U.S, product for the most part is the gold standard, meaning that more goes into our product in the U.S. just because of what's allowed here. As far as the price point, we look at the market and where the price points are similar products in the market and we believe that we're definitely within that range. But just the fact that some of these products just don't allow the same composition, those markets create some opportunity for gross margin.

Okay, great. And then, just my last question on the subject of North America, you referenced it in the prepared remarks and the release that you expect to start seeing some results as early as fourth quarter from these investments you're making in North America. I guess, just more specifically, what do you mean by -- how will we be able to sort of judge those results? Are you expecting positive year-over-year growth when we get to the fourth quarter? Or how will that show up?

Well, part of the issue is some of these initiatives won't be launched until convention and so we won't have a recognized sales on any of those kinds of things until the fourth quarter. And so as we're looking at seeing results as it relates to fourth quarter 2012, we'll start recognizing some new product launches and innovations that will be released at our international convention. We are projecting a very, very modest stabilization in North America and we want to see our customer accounts also stabilize and we believe these initiatives are going to contribute greatly as you compare it quarter-over-quarter.

John, real quick, we do have a little bit of an issue as we expect the U.S. dollar to strengthen both in looking at Canada and Mexico and how it plays into that but like Kevin said, we do expect some modest year-over-year progress there.

The next question comes from Frank Camma from Sidoti & Company. Frank A. Camma - Sidoti & Company, LLC: I just have a question on revenue in the Asia Pacific was up 14% but the associate growth was only about 1.4%. Can you talk about the discount and explain why the associates were essentially so much more productive?

Yes. I think we're seeing in some market -- some markets are very good about attaching our customers to the company as per customers and distributors. Other companies, we see more retailing. I know in Korea, there's a lot more retailing and so they might buy products for 4 people but we only in our system see one. And so as we shift to markets and they become a bigger part, in the U.S., you really see most of the people who buy from USANA in the U.S./Canada buy directly from us. We ship directly to them, have their name, e-mail address and all that. But in Asia, you see a lot more where a person is supplying them much like the Avon lady gets their orders for their 30 neighbors and walks down and delivers them. Avon doesn't know any of those customers but they sell to one lady 30 sets of orders. And so we're starting to see more of that. So you don't have the direct relationship in some of those markets that we were used to in the past when we're just more of a North American company. But now we shifted more and more to an Asian company that has that mentality and that business mind. Frank A. Camma - Sidoti & Company, LLC: Good. Has that affected your subscription, your autoship model? And what percent are you at now for 2011?

Definitely has affected it as those people aren't on autoship and the leaders are buying products for them. Percentage-wise, Doug, I don't...

I think we're right around 35% of our revenue are on autoship and what Dave mentioned is true, is that you see a higher level in markets like North America and a little bit lower level in Asian markets, where there's a lot of walk-in business and a high-level kind of business focus. Frank A. Camma - Sidoti & Company, LLC: Great. In past calls you spoke about increasing competitive pressures, can you update us on the competitive landscape? And is it competition for sales or recruitment of associates? Or are you seeing both?

We don't see any competition other than what we've seen for the last 20 years. Nothing out of the ordinary at this point, just business as usual. Frank A. Camma - Sidoti & Company, LLC: Okay. And final question. I mean, your cash flow is tremendous. Are there any plans other than -- I mean, you didn't really buy back any shares this quarter or minimal. What are your plans for that cash flow?

Currently, we're looking to build up a little bit of a cash balance to have there, when opportunities come along. And we are always discussing what to do when we feel we get to that excess cash level with what we'll do, dividends, buybacks or investments in other companies or vertical integration. We're always discussing that but at this point, we're building up some cash reserves just to create a safety net so that we don't have to go on to lines of credit or things if we see a huge opportunity come along that we want to jump on. Frank A. Camma - Sidoti & Company, LLC: Is it fair to say you'll continue to look at share repurchases though?

Absolutely, that is always one of the things that we look to, how we have a long history of looking to those and so it's always one of the options out there for us.

[Operator Instructions] The next question comes from under Rommel Dionisio from Wedbush Securities.

You mentioned that new markets, were that $10 million to $13 million in sales this year? And just to clarify, was that markets you guys have already announced that you ventured? Or does that include markets that you haven't announced yet?

Those are just markets that we've announced and haven't been able to get into full operation yet. Those sales will start appearing in the second quarter and going on. So we'll have 3 quarters of the year with those new markets incorporated, the France, Belgium and Thailand.

Okay and just one quick housekeeping question. Sorry if I missed this but did you guys say what sales in Asia would've been up? They're up 14% but excluding currency, what the number have been?

Impact on currency for the quarter was roughly $2.5 million and a lot of that was in some of our Asian markets. Some of it was in Canada as well. So...

[Operator Instructions] There appears to be no further questions. Please go ahead.

Thank you for your questions and for your participation on today's conference call. If you have any remaining questions, please feel free to contact Investor Relations at (801) 954-7961. Thank you and have a great day.

Ladies and gentlemen, this concludes the USANA Health Sciences Fourth Quarter Earnings Conference Call. Thank you for participating. You may now disconnect.